The impact of the coronavirus downturn is already being felt throughout the real estate industry as some of the biggest mortgage companies in the U.S. are already taking drastic steps to help borrowers and renters.
On the other side of the transaction, real estate companies are pulling back from new endeavors as the market seemingly becomes more uncertain by the day.
Even one of the biggest real estate startups in recent memory isn’t immune to the impact of the coronavirus on the market.
Compass, the nation’s fastest-growing real estate brokerage, laid off approximately 15% of its 2,500 employees this week in an attempt to mitigate the impact of the economic slowdown on its business.
Compass CEO Robert Reffkin announced the layoffs Monday in an email to company employees.
“We are in the middle of one of the most challenging and uncertain moments in our lifetimes,” Reffkin said in the email, a copy of which was obtained by HousingWire.
“The economic fallout from the spread of this virus has been shockingly swift and far-reaching. We aren’t just facing an economic recession, we are facing an economic standstill,” Reffkin continued.
“Many parts of our economy will be completely shut down for months. As a result, our country will likely have gone from a healthy level of employment to more than 10% unemployment in a month, faster than any point in our lifetime,” Reffkin added. “This will almost certainly result in a recession. The best we can hope for is a V-shaped recovery as opposed to an extended recession.”
In fact, Reffkin said that the company is now projecting a 6-month decline in revenue of 50%, citing a recent 80-90% decline in transactions in China during the height of the outbreak there as an example of business decline due to the virus.
Facing those market realities led to Compass making some tough decisions to protect the health of the company, Reffkin said.
“Earlier today, we laid off approximately 15% of our employees — passionate, talented professionals who did everything that was asked of them, went above and beyond for our customers and are leaving the company through no fault of their own,” Reffkin said. “We have been lucky to work alongside these folks and will miss them as both colleagues and friends.”
But the layoffs aren’t the only changes the company is making.
Reffkin also said that the company has also “taken steps to reduce costs wherever we can in our business.” Included among those steps is scaling back Compass Concierge, a service where the company fronts the cost of home improvement services to a home seller, by 80%.
Beyond that, the company is also “pausing corporate marketing spend, significantly reducing corporate expenses and office costs and halting all non-essential projects.”
Reffkin also said he is reducing his own salary to $0 and said that the Compass executive team has decided to reduce their salary by 25%.
The cutbacks at Compass are a sign of just how deeply the coronavirus crisis is impacting the real estate business. It was just nine months ago that Compass raised $370 million in a funding round that valued the company at $6.4 billion.
But the economic effect of the virus is hitting real estate hard and even a company with as much financial backing as Compass is having to make cutbacks, although Reffkin believes the company is positioned to withstand the storm well.
“While the timing of the economic recovery is uncertain, we are certain that by making these hard decisions today, our company’s future is secure,” Reffkin said.
“I remain optimistic about our future. Compass has a strong cash position, $0 of debt and a proven business model. I have complete confidence in our ability to weather this storm and bounce back stronger,” Reffkin added. “We are going to get through this. But not without some difficult days ahead. Today was not an easy day for Compass. But we are well positioned to not just survive but thrive as the economy rebounds.”
The layoffs at Compass were first reported by The Real Deal.